How the UK Should Respond to Trump’s Tariffs and a Global Slowdown: A Keynesian Strategy for Resilience and Renewal

Jason Perysinakis
Apr 8
4 min read

By Jason Perysinakis Founder, The Centre for Technological Growth and Policy Innovation, April 2025

The World Just Changed—Britain Must Respond Intelligently

President Donald Trump has enacted sweeping tariffs: 10% on all imports and 34% on Chinese goods. These moves have shaken global markets, raised fears of a trade war, and increased the risk of a mild global recession in 2026.

Britain—already navigating stagnant growth and high debt—now faces a critical choice.

We can panic. We can cut. Or we can lead.

This isn’t a time for short-term thinking or ideological rigidity. It’s a time to apply the lessons of Keynesian economics: when private spending collapses, the state must step in to stimulate demand, protect jobs, and prepare the ground for future prosperity.

What’s Going On With the UK Economy?

Here’s where we stand:

Economic Growth: GDP grew just 0.1% in Q4 2024—barely above zero.(Source: ONS)
Inflation: Prices rose by 2.8% in the 12 months to February 2025—down from a peak of over 10% in 2023.(Source: ONS)
Borrowing: The government has borrowed £132.2 billion in the first 11 months of the 2024/25 financial year—more than forecast.(Source: Reuters)
Interest Rates: The Bank of England base rate is 4.25%, but expected to fall as inflation cools and recession fears grow.(Source: The Guardian)

What is Fiscal Stimulus (And Why Do We Need It Now)?

In plain English: When people and businesses spend less, the economy shrinks. Businesses sell less, they cut jobs, and the downward spiral begins.

Fiscal stimulus is when the government steps in to boost spending—putting money into people’s pockets and investing in the economy directly.

This isn’t reckless. It’s smart. Done right, it stops recessions before they spiral and lays foundations for long-term growth.

A Three-Part Keynesian Plan for Britain

1. Put More Money in People’s Pockets

Raise the personal tax allowance so working people keep more of their pay.
Support low- and middle-income households with targeted relief on energy, housing, and childcare.

Why it matters: People on lower incomes spend more of what they earn. Stimulating their spending keeps shops, services, and supply chains alive.

2. Cut Costs for Businesses to Protect Jobs

Reverse the recent increase in National Insurance contributions for employers.
Offer temporary tax reliefs for hiring, apprenticeships, and upskilling.

Why it matters: In a downturn, the cost of hiring becomes a key barrier. This approach helps keep people in work and businesses afloat.

3. Invest in the Future

Launch a £30 billion public investment drive in green energy, digital infrastructure, AI, and advanced manufacturing.
Prioritise high-multiplier sectors that create jobs and raise productivity.

Why it matters: Government spending on infrastructure and innovation has a ripple effect. For every £1 spent, the economy may grow by £1.50 or more. This is the heart of the Keynesian multiplier.

But What About Debt? Isn’t That Dangerous?

Yes, debt matters. But context is everything.

Here’s the key idea:

It’s not how much you borrow. It’s what you do with it.

Borrowing to invest in long-term growth is different from borrowing to plug holes in day-to-day spending.

Right now, Britain’s debt is around 98.5% of GDP—high, but manageable if growth resumes. By investing in the future, we grow the economy, raise tax revenues, and lower the debt-to-GDP ratio over time.

That’s how we avoid a Greece-style debt spiral—where growth collapses, tax revenues fall, and debt explodes.

Understanding Interest Rates and Inflation (Simply)

Interest rates = The cost of borrowing money, set by the Bank of England.
Inflation = How fast prices are rising.

When inflation is too high, the Bank raises rates to slow spending. When inflation is low or falling, it can cut rates to encourage investment.

In 2023, we needed high rates to fight inflation. But now, with inflation cooling and a global slowdown looming, we need to stimulate demand, not suppress it.

Avoiding a Truss-Style Market Panic

We all remember autumn 2022—when Liz Truss announced unfunded tax cuts, markets panicked, and borrowing costs soared.

The lesson: Markets don’t hate spending. They hate uncertainty, inconsistency, and ideology without a plan.

That’s why our Keynesian strategy must be clear, credible, and responsible.

The Long-Term Plan: Growth with Discipline

Borrow now to invest in growth.
Set a credible medium-term target: reduce debt-to-GDP once growth returns.
Introduce a UK “Fiscal Credibility Rule”—allow borrowing for investment, but commit to reducing debt over the economic cycle.
Grow our way to stability—not through austerity, but through productivity and innovation.

Conclusion: This Is Not the Time for Fear. It’s Time to Lead.

Trump’s tariffs have made the world more dangerous for open economies. Britain must respond—not with cuts, nor complacency—but with a modern Keynesian strategy that protects our people and prepares us for the future.

We must spend wisely, borrow responsibly, and invest ambitiously. That is how we grow stronger—through crisis and beyond.

About the AuthorJason Perysinakisis the Founder of The Centre for Technological Growth and Policy Innovation. He writes on AI policy, economic modernisation, and Britain’s role in the global digital era.